Norway’s corporate bond issuance is growing at the fastest pace in at least six years as Europe’s biggest oil exporter prepares for record spending on its offshore industry.
Led by billionaire John Fredriksen’s Seadrill Ltd., and Prosafe SE, an operator of offshore housing rigs, companies have raised 6.05 billion kroner ($1.04 billion) selling high-yield bonds, the best start to a year since at least 2006.
“There has been a tremendous amount of liquidity and risk appetite available for issuers,” Simen Flaaten, head of fixed income at Oslo-based RS Platou Markets AS, which helped manage the Seadrill issue, said in an interview.
Norway’s oil companies are finding it easier to lure investors after a 117 percent surge in crude prices since 2008, major oil discoveries last year and projected record offshore spending. The world’s seventh-largest oil exporter, which emerged as a haven during the financial and sovereign debt crises, is also benefitting from a return of global risk appetite amid pledges of low U.S. interest rates through 2014 and unlimited liquidity from the European Central Bank.
Seadrill, which operates about 60 oilrigs, this week sold 1.25 billion kroner in bonds at a yield of 325 basis points more than the Norwegian interbank offered rate. Other issuers include billionaire Kjell Inge Roekke’s Aker ASA, which sold a 500 million-krone seven-year note.
Benchmark North Sea crude oil rose 0.3 percent today to $112.44 a barrel, gaining for a fourth day. The krone strengthened 0.2 percent against the dollar to 5.8113 as of 11:39 a.m. in Oslo, and was little changed versus the euro at 7.6575.
It took Prosafe less than an hour to sell its 500 million kroner five-year bond, Karl Ronny Klungtvedt, chief executive officer of Cyprus-based Prosafe, said in an interview.
“We were under no great pressure to refinance but we just wanted to be out early and it seems that the liquidity was good,” he said. “Prices had come down relative to where we saw them just a couple of months back and also currently the spread between bonds and bank prices is extremely low.”
Prosafe sold its bond at 375 basis points more than Nibor, compared with 400 basis points on a four-year three years ago, data compiled by Bloomberg show. Aker sold a callable bond at 500 basis points more than Nibor on Jan. 12, while Teekay Offshore Partners LP agreed to 575 basis points more than Nibor in a 600 million-krone sale of five-year notes on Jan. 19. DOF ASA sold 700 million kroner in five-year notes last month, at 725 basis points more than Nibor, while Farstad Shipping ASA on Jan. 26 issued 400 million kroner in bonds at a 420 basis-point spread.
Similar bonds were issued in Norway last year at spreads of about 425 basis points to 700 basis points more than the benchmark Norwegian lending rate, according to the Oslo Stock Exchange.
The cost of insuring against default on European corporate debt fell to the lowest in five months after the Federal Reserve on Jan. 25 signaled it plans to keep official borrowing costs low through 2014, easing global funding concerns. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings yesterday dropped five basis points to 580, the lowest since Aug. 8, according to JPMorgan Chase & Co. prices. A decline signals a perception of improved credit quality.
Ready funding may ease an estimated surge in oil and gas exploration off Norway’s shores. The petroleum industry will invest a record 184.6 billion kroner in Norway this year, the statistics office said in December, citing an industry survey.
Statoil ASA, country’s biggest oil and gas producer, and Sweden’s Lundin Petroleum AB, made two major offshore finds in Norway last year that are linked into a single deposit. The finds are part of one “giant” oil field and may the biggest discovery in almost 40 years.
Stricter regulation since the 2010 BP Plc Macondo well explosion in the U.S. Gulf of Mexico has made oil exploration more expensive. It’s also raised demand for newer rigs as companies search for drillers able to operate in harsh, deepwater environments as resources dwindle in maturing areas.
Norway’s offshore industry relies on funding from the bond market to pay for its “very” capital intensive operations, said Oeyvind Hamre, an analyst at Pareto Securities AS. High-yield bond sales reached 24 billion kroner in 2011, 33 billion kroner in 2010, 15 billion kroner in 2009, 4 billion kroner in 2008 and 47 billion kroner in 2007, according to Pareto.
“Given what is going on in the banks now, the high yield market will be even more important for corporates going forward,” Hamre said. “We had a good start to the year. We’re optimistic for the outlook.”
High-yield bonds, or junk bonds, are typically rated below Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s or not rated at all.
Companies may be more inclined to sell bonds as regulators globally are seeking to tighten capital standards for banks, potentially limiting their ability to lend.
“Bonds in solid asset-backed companies are attractive in the bond market,” said Espen Furnes, a fund manager at Storebrand Asset Management in Oslo. “The spreads being offered by bond investors are better than those offered from banks. Banks are far more restrictive on lending these days, both because their funding is hard to come by and they’re faced with the uncertainty of new stricter capital coverage rules.”